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Italy GDP Q4 2016

Italy: Economy decelerates slightly in the final quarter of 2016, dragged down by inventories

March 3, 2017

The Italian economy decelerated slightly and recorded another period of mild growth in the final quarter of 2016. In Q4 2016, GDP grew 0.2% over the previous quarter in seasonally- and working-day adjusted terms, according to detailed data released by the National Statistics Office (Istat) on 3 March. The reading matched the preliminary estimate and came in below the 0.3% rise in Q3. The final quarter’s subdued result nevertheless brought full-year 2016 GDP growth to 1.0%, up from 0.7% in 2015 and the highest reading since 2010.

Growth in Italy continues to be underpinned by recovering domestic demand, while the external sector didn’t contribute to growth. In particular, fixed investment grew 1.3% in Q4 quarter-on-quarter, on the back of the double-digit growth recorded in the transport sector and supported by growing new orders, as attested by the upward trend of the manufacturing PMI in the final months of last year. Government consumption also added to growth, as it swung from a 0.2% qoq contraction in Q3 to a 0.6% expansion in the fourth quarter. Nevertheless, inventories subtracted 0.2 percentage points from growth, contrasting the previous quarter’s mildly positive contribution, and private consumption virtually stalled (+0.1% qoq), probably weakened by the uncertain political situation ahead of the 4 December constitutional referendum.

Meanwhile, the contribution of foreign net demand to growth was zero, which represented an improvement from the previous quarter, when the external sector subtracted from growth. Imports of goods and services accelerated from a 1.0% increase in Q3 to a 2.2% rise in Q4, and exports expanded 1.9% in the fourth quarter, which was up from the 0.3% increase observed in Q3.

The Italian economy continues to grow feebly, weighed down by numerous and long-standing structural weaknesses, which also affect the outlook: its rigid labor market, the high volume of NPLs burdening the banking sector, its bloated public sector and high taxes. The renewed political instability adds to all these factors, making growth prospects for the Mediterranean country very modest.

Panelists see the economy increasing 0.9% in 2017, which is up 0.1 percentage points from last month’s forecast. For 2018, panelists expect the economy to expand 1.0%.